nep-ias New Economics Papers
on Insurance Economics
Issue of 2019‒10‒14
fifteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Household Labor Search, Spousal Insurance, and Health Care Reform By Hanming Fang; Andrew J. Shephard
  2. How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply? By Chunzan Wu; Dirk Krueger
  3. Risk Preferences and the Impact of Credit and Insurance on Farm Technology Uptake By Martine Visser; Hafsah Jumare; Kerri Brick
  4. Spousal Insurance, Precautionary Labor Supply, and the Business Cycle - A Quantitative Analysis By Kathrin Ellieroth
  5. On Path–dependency ofConstant Proportion Portfolio Insurance strategies By João Carvalho; João Beleza Sousa; Raquel M. Gaspar
  6. The Challenges of Universal Health Insurance in Developing Countries: Evidence from a Large-scale Randomized Experiment in Indonesia By Rema Hanna; Benjamin A. Olken
  7. Economic Policy Uncertainty and the Supply of Business Loans By Santiago Barraza; Andrea Civelli
  8. Quantifying Life Insurance Risk using Least-Squares Monte Carlo By Claus Baumgart; Johannes Krebs; Robert Lempertseder; Oliver Pfaffel
  9. The Cost of Holding Foreign Exchange Reserves By Eduardo Levy Yeyati
  10. A Summary of Selected CBO Reports on Cash and Accrual Budgeting: Working Paper 2019-09 By Megan Carroll; David Torregrosa
  11. Can Risk Be Shared Across Investor Cohorts? Evidence from a Popular Savings Product By Hombert, Johan; Lyonnet, Victor
  12. The role of contradictions and norms in the design and use of a telemedicine system: healthcare professionals’ perspective By Schwalb, Pascal; Klecun, Ela
  13. Partial Insurance with Advanced Information By Fatih Karahan; Laura Pilossoph
  14. The influence of the level of education on investors risk tolerance level By Zandri Koekemoer
  15. Management Practices and Labor Productivity in Intensive Care Homes for the Elderly (Japanese) By INUI Tomohiko; KAWASAKI Kazuyasu; ITO Yukiko; MIYAGAWA Tsutomu; MANO Toshiki

  1. By: Hanming Fang; Andrew J. Shephard
    Abstract: Health insurance in the United States for the working age population has traditionally been provided in the form of employer-sponsored health insurance (ESHI). If employers offered ESHI to their employees, they also typically extended coverage to their spouse and dependents. Provisions in the Affordable Care Act (ACA) significantly alter the incentive for firms to offer insurance to the spouses of employees. We evaluate the long-run impact of ACA on firms’ insurance offerings and on household outcomes by developing and estimating an equilibrium job search model in which multiple household members are searching for jobs. The distribution of job offers is determined endogenously, with compensation packages consisting of a wage and menu of insurance offerings (premiums and coverage) that workers select from. Using our estimated model we find that households’ valuation of employer-sponsored spousal health insurance is significantly reduced under ACA, and with an “employee-only” health insurance contract emerging among low productivity firms. We relate these outcomes to the specific provisions in the ACA.
    JEL: G22 I11 I13 J32
    Date: 2019–10
  2. By: Chunzan Wu (University of Miami); Dirk Krueger (University of Pennsylvania)
    Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of 29% and 16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner.
    Date: 2019
  3. By: Martine Visser; Hafsah Jumare; Kerri Brick
    Abstract: We use a series of credit and insurance simulation games to test the role of access to credit and insurance on magnitude and timing of farm technology uptake with small-scale farmers in South Africa. Using Cumulative Prospect Theory, we assess how insurance impacts technology uptake given risk preferences. Our findings suggest that risk aversion is linked to lower uptake of the insured technology. while loss averse farmers are more likely to adopt technology bundled with insurance. Higher weighting of small probability events leads to later uptake of the uninsured technology option. We further find that wealth is critical in uptake of technology, with cumulative experimental income and real household income stifling investment in insured and uninsured technology options even when real wealth is not at stake. Overall, we find that insurance is not sufficient to counter the behavioural factors linked to asset constraints and risk preferences that suppress modern farm technology uptake.
    Keywords: Risk Preference, Poverty-Trap, Insurance, Farm, Technology, experiment
    JEL: D9 D2 D8 C6 C9 O1 Q1
    Date: 2019–03
  4. By: Kathrin Ellieroth (Indiana University Bloomington)
    Abstract: I document that aggregate hours worked and employment are significantly less cyclical for married women than for married men and single women. Married women are less likely to leave the labor force and are more attached to employment in recessions. Furthermore, I show that men have a strongly countercyclical job loss probability. Using a two-person household model with labor market frictions, I show that married women exhibit precautionary labor supply in response to the higher threat of job loss experienced by their husband in recessions and thus, offer spousal insurance. The cyclicality of men’s job loss probability accounts for the majority of married women’s low cyclicality of employment.
    Date: 2019
  5. By: João Carvalho; João Beleza Sousa; Raquel M. Gaspar
    Abstract: This paper evaluates the path–dependency/independency of most widespread PortfolioInsurance strategies. In particular, we look at Constant Proportion Portfolio Insurance (CPPI)structures and compare them to both the classical Option Based Portfolio Insurance(OBPI)and naive strategies such as Stop-loss Portfolio Insurance (SLPI) or a CPPI with a multiplierof one. The paper is based uponconditional Monte Carlo simulations and we show that CPPI strategies with a multiplier higher than 1 are extremely path-dependent and that they can easilyget cash-locked, even in scenarios when the underlying at maturity can be worth much morethan initially. The likelihood of being cash-locked increases with the size of the multiplierand the maturity of the CPPI, as well as with properties of the risky underlying’s dynamics.To emphasize the path dependency of CPPIs,we show that even in scenarios where theinvestor correctly “guesses” a higher future value for the underlying, CPPIs can get cash-locked,losing the linkage to the risky asset.This cash-lock problem is specific of CPPIs, itgoes against its European-style nature of traded CPPIs, and it introduces into the strategy a risks not related to the underlying risky asset – a design risk.Design risk does not occur forpath-independent portfolio insurance strategies, like the classical case of OBPI strategies, norin naive strategies. This study contributes to reinforce the idea that CPPI strategies suffer froma serious design problem.
    Keywords: Portfolio Insurance, CPPI, OBPI, SLPI, path-dependencies, cash-lock, Conditioned GBM Simulations
    Date: 2019–09
  6. By: Rema Hanna (Center for International Development at Harvard University); Benjamin A. Olken
    Abstract: To assess ways to achieve widespread health insurance coverage with financial solvency in developing countries, we designed a randomized experiment involving almost 6,000 households in Indonesia who are subject to a nationally mandated government health insurance program. We assessed several interventions that simple theory and prior evidence suggest could increase coverage and reduce adverse selection: substantial temporary price subsidies (which had to be activated within a limited time window and lasted for only a year), assisted registration, and information. Both temporary subsidies and assisted registration increased initial enrollment. Temporary subsidies attracted lower-cost enrollees, in part by eliminating the practice observed in the no subsidy group of strategically timing coverage for a few months during health emergencies. As a result, while subsidies were in effect, they increased coverage more than eightfold, at no higher unit cost; even after the subsidies ended, coverage remained twice as high, again at no higher unit cost. However, the most intensive (and effective) intervention – assisted registration and a full one-year subsidy – resulted in only a 30 percent initial enrollment rate, underscoring the challenges to achieving widespread coverage.
    Keywords: Global Health
    JEL: I13 O15
    Date: 2019–10
  7. By: Santiago Barraza (Universidad de San Andres); Andrea Civelli (University of Arkansas)
    Abstract: Using a Vector Autoregressive framework of analysis, we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty. This contraction takes two main, distinct forms. On the one hand, banks restrict their supply of spot funds, which we document using flows of loans and term loan originations. On the other, banks also curtail their provision of liquidity insurance, reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers ever drawing down on the lines.
    Keywords: economic policy uncertainty, bank lending, business, credit
    JEL: D80 E66 G21 G28
    Date: 2019–10
  8. By: Claus Baumgart; Johannes Krebs; Robert Lempertseder; Oliver Pfaffel
    Abstract: This article presents a stochastic framework to quantify the biometric risk of an insurance portfolio in solvency regimes such as Solvency II or the Swiss Solvency Test (SST). The main difficulty in this context constitutes in the proper representation of long term risks in the profit-loss distribution over a one year horizon. This will be resolved by using least-squares Monte Carlo methods to quantify the impact of new experience on the annual re-valuation of the portfolio. Therefore our stochastic model can be seen as an example for an internal model, as allowed under Solvency II or the SST. Since our model does not rely upon nested simulations it is computationally fast and easy to implement.
    Date: 2019–10
  9. By: Eduardo Levy Yeyati
    Abstract: Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effects empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
    Keywords: international reserves, exchange rate policy, capital flows, financial crisis
    JEL: E42 E52 F33 F41
    Date: 2019–05
  10. By: Megan Carroll; David Torregrosa
    Abstract: Federal retirement programs and some federal insurance programs have long-term effects on the budget. But the federal budget process typically uses cash-based accounting measures that cover a 10-year period, which may be too short to accurately report those programs’ net budgetary effects over the long term. In contrast, using accrual accounting for such programs would accelerate the recognition of long-term costs and would display the expected costs of new commitments when they were incurred and thus were most controllable. However, such estimates are less transparent and
    JEL: G00 H50 H60 H61 H81 H83 J32 J45
    Date: 2019–10–09
  11. By: Hombert, Johan; Lyonnet, Victor
    Abstract: This paper shows how one of the most popular savings products in Europe -- life insurance financial products -- shares market risk across investor cohorts. Insurers smooth returns by varying reserves that offset fluctuations in asset returns. Reserves are passed on between successive investor cohorts, causing redistribution across cohorts. Using regulatory and survey data on the 1.4 trillion euro French market, we estimate this redistribution to be quantitatively large: 1.4% of savings value per year on average, or 0.8% of GDP. These findings challenge a large theoretical literature that assumes inter-cohort risk sharing is impossible. We develop and provide evidence for a model in which the elasticity of investor demand to predictable returns determines the amount of risk sharing that is possible. The evidence is consistent with low elasticity, sustaining inter-cohort risk sharing despite predictable returns. Demand elasticity is higher for investors with a larger investment amount, suggesting that low investor sophistication enables inter-cohort risk sharing.
    Keywords: Inter-cohort risk sharing; Life insurers
    JEL: G22 G32
    Date: 2019–09
  12. By: Schwalb, Pascal; Klecun, Ela
    JEL: J50
    Date: 2019–09–01
  13. By: Fatih Karahan (Federal Reserve Bank of New York); Laura Pilossoph (Federal Reserve Bank of New York)
    Abstract: We study how news about future earnings and earnings shocks affect consumption. Utilizing panel data from the Survey of Consumer Expectations (SCE), we document that individuals have a considerable amount of advanced information regarding their future earnings changes. For example, they can assess fairly well their job loss and job finding probabilities. We develop a model of consumption that allows for households to react to this advanced information about future shocks to earnings. We estimate this model on data from the SCE and recover the effect of transitory income shocks, permanent income shocks, and news shocks on spending.
    Date: 2019
  14. By: Zandri Koekemoer (North West University)
    Abstract: Increased attention is being given to the influencethat demographic factors have on financial risk tolerance. Financial risk tolerance is the overall amount of uncertainty an investor is willing to take with regard to his/herinvestment decisions. The aim of this article was to investigate whether an investor?s level of education plays a role in the level of financial risk that they are willing to tolerate.Data for this article was purposefully collected using a quantitative questionnaire thatwas electronically distributed to 600 investors within the South African market. Previous research suggests thata positive relationship exists between the level of education and risk tolerance. In other words, an investor with a higher level of education will be willing to tolerate more financial risk due to being able to take more calculated financial risks. The results of this study indicated similar findings to previous research wherean individual with a postgraduate degree was more likely to be high risk tolerant compared to an individual with a lower level of education. Individuals who had some level of schooling were more likely to be risk adverse.
    Keywords: Risk tolerance, education level, financial decisions, demographics
    JEL: A23 I22 G11
    Date: 2019–10
  15. By: INUI Tomohiko; KAWASAKI Kazuyasu; ITO Yukiko; MIYAGAWA Tsutomu; MANO Toshiki
    Abstract: With the aging of Japanese society, the demand for care services for the elderly is rapidly increasing. It is already difficult to provide enough care services, and we anticipate an enormous increase in costs for care services in the future. To cope with these situations, it is of paramount importance to improve the efficiency of the long-term care service industry. Previous studies found that the better-managed establishments recruit and retain workers with higher capabilities and achieve higher productivity. The establishments with better management practices have been found to provide higher quality service in the case of non-profit organizations, such as hospitals and schools. Our study examines the relationship between labor productivity and management practices in Japanese intensive care homes for the elderly. We find a positive relationship between the management practices and each of the following: labor productivity, ICT and robot adoption, and manager's hours spent improving services. On the other hand, there was no correlation between the management practices and the retention rate of workers or the shares of aged workers.
    Date: 2019–08

This nep-ias issue is ©2019 by Soumitra K. Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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